As buyers continued to cycle out of tech on Wednesday, CNBC’s Jim Cramer reminded investors of his classic adage: Keep a diverse portfolio.
Owning stocks from different sectors makes it easier to shoulder losses when one part of the market takes a nosedive, according to Cramer.
“For all my years down here, I know that if you self-immolate on days like today because you ignored diversification and put everything in some of the Magnificent Seven, you are doing something wrong,” Cramer said.
The S&P 500 and the tech-heavy Nasdaq Composite declined on Wednesday, with the latter posting its worst day since 2022. Mega-cap tech stocks related to artificial intelligence swept the market during the first half of the year. But now Wall Street is clamoring for small and medium-sized businesses, especially ones that would benefit from interest rate cuts — which could be on the horizon as inflation slows.
Cramer listed some reasons investors could be selling tech: They may think that small and medium-sized businesses will do well in an environment with lower interest rates, or perhaps some money managers have decided Big Tech has “gone too far.”
Investors may also believe that former President Donald Trump will win the election, and his platform champions smaller businesses, not the mega caps, he added.
But Cramer said it doesn’t matter which explanation investors find convincing. At the end of the day, he said, it’s important to “ring the register on the winners from this rotation” and “start making your list of what to buy that’s being thrown out.”
To Cramer, many on Wall Street sell great stocks out of fear or panic, which sometimes creates solid buying opportunities.
“I believe in diversification enough that I never mind you owning an index fund, but I want it to be side by side with individual stocks that can potentially make you fortunes,” he said. “I know, though, that you won’t stick with those stocks if you’re undiversified.”
